The Indian rupee slipped heavily by 55 paise to provisionally close at 86.07 against the US dollar on Friday, dragged by a rally in international crude oil prices and increasing geopolitical tension in the Middle East region after Israel was said to have attacked the nuclear installations in Iran.
At the interbank foreign exchange market, the rupee started off weak against the greenback at 86.25 and ranged between 85.92 and 86.25 levels in the intra-day trade. It ended up at 86.07, after falling sharply off Thursday’s close of 85.52.
The main catalyst behind the fall of the rupee was the acute increase in the price of crude oil. The international oil benchmark, Brent crude, jumped by 7.27 percent to USD 74.40 per barrel in future trade. This caused the oil prices to shoot up, creating worries about the current account deficit and inflation in India since the latter imports oil heavily.
The decline in the rupee was also triggered by the strong US dollar, with the dollar index advancing 0.33 per cent to 98.24, which showed how the greenback gained against a basket of major world currencies.
To worsen the situation, poor domestic equity markets and foreign institutional investor (FII) outflows added to the bearish mood. The yardstick BSE Sensex fell by 573.38 points to settle at 81,118.60, and the NSE Nifty was down by 169.60 points, closing at 24,718.60.
The exchange data showed that FIIs sold equities worth Rs 3,831.42 crore on a net basis on Thursday as risk aversion prevailed globally.
Unless the tension in the Middle East subsides and oil prices settle, Forex traders observed that the rupee could still be under downward pressure in the short run.
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